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Hurricane Mew

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FT

JPMorgan Chase has just provided a blunt assessment of its $95bn portfolio of second mortgages, also known as home equity loans. The extra disclosure revealed that about 10 per cent of it is secured against homes suffering the burden of negative equity. Loans caught in this trap are particularly toxic for the banks. They punch above their weight in contributing to credit losses - 60 per cent in JPMorgan Chase's case - with loss rates three to four times those incurred on loans that are still just - but only just - in the money.

Like the US, we have become addicted to MEW. The UK enjoyed £50b of MEW last year. Falling house prices combined with credit tightening will inevitably bring this to a shuddering halt.

If MEWing is halved over the next 12 months, that will be £25b less money circulating within the economy.

That amounts to the loss of 1/2 million jobs if it is assumed that half of MEW ends up as wages at some point.

The exchequor will lose £10b of income. This will force cutbacks and drive up unemployment yet further.

In 12 months time the boats and planes will still be full of East Europeans, but they will be going the other way.

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And what's more - MEW will makethe "Together" mortgage seempositively cautious oncenegative equity is really underway.

Average not great house worth £350k in 2007. £Mortgage 250k. let's MEW £50k and blow it on a "neeeew kitchen and a hols in Dooobai"

Average not great house (first to stay on shelf in crash) worth £300k by mid 2008, mortgage now £300k.....oops negative equity here we come....FAST

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FT

Like the US, we have become addicted to MEW. The UK enjoyed £50b of MEW last year. Falling house prices combined with credit tightening will inevitably bring this to a shuddering halt.

If MEWing is halved over the next 12 months, that will be £25b less money circulating within the economy.

That amounts to the loss of 1/2 million jobs if it is assumed that half of MEW ends up as wages at some point.

The exchequor will lose £10b of income. This will force cutbacks and drive up unemployment yet further.

In 12 months time the boats and planes will still be full of East Europeans, but they will be going the other way.

Too true. This is why the level prices and soft landing scenario so beloved of some bulls is not an option.

The economy is too dependent on MEWing and the confidence given by the wealth effect. Once these and house prices go into reverse they'll feed off each other.

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  • 295 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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